Musings on Economics, Finance, and Life

Pigou and the Plastic Bag

The big news in Washington today are the early returns for the new DC bag tax. As of January 1, DC shoppers have to pay a 5 cent tax for each disposable plastic or paper bag that they get at grocery, drug, convenience, and liquor stores.

The Washington Post reports that the DC government has released results for January, the program’s first month. It appears to have had a big effect on behavior:

In its first assessment of how the new law is working, the D.C. Office of Tax and Revenue estimated that food and grocery establishments gave out about 3 million bags in January. Before the bag tax took effect Jan. 1, the Office of the Chief Financial Officer had said that about 22.5 million bags were being issued each month in 2009.

In other words, 87% fewer disposable bags were handed out in January than the average month last year.

Of course, one implication of a big behavioral response is that the tax might collect less revenue than anticipated:

District officials had estimated that the tax would generate $10 million over the next four years for environmental initiatives [note: that’s $208,000 per month]. The money will go to the newly created Anacostia River Cleanup Fund, which will spend it on various projects. But in January, the tax generated only $149,432, suggesting that it might fall short of revenue projections.

One shouldn’t make too much of a single month of results–particularly when it’s the first month of the program.

But I suspect that Arthur Cecil Pigou (the father of environmental taxes) is smiling somewhere.

Advertisements

Share this:

Like this:

Related

11 Responses

The tax has obviously changed behavior. On the other hand, it’s interesting to ask how it did so. At the lunch spot I frequent, the restaurant simply pulled their plastic bags entirely, that is, we are seeing the effect of the owner’s price elasticity, not mine. Had they added 5 cents to the cost of every order, I would have paid it and put everything in a plastic bag without a further thought. Because, yes – it is sometimes a nuisance to not have the bag.

And, of course (at this establishment, at least), the containers for the food continue to be either styrofoam or clear, hard plastic, which I assume are no better for the environment than plastic bags. What’s more, I always put the bag in the trash, rather than making the long walk/drive/Metro to the Anacostia to gratuitously throw it there, as D.C. bureaucrats imagine its residents do.

It’s another example of the government relieving us of our money for the privilege of being inconvenienced.

Interesting to see Phil’s observation re: containers made of other, non-taxed but not necessarily more desirable materials. That was the first question that popped into my head. Here’s another: Isn’t it possible that, particularly over time, there will be a shift to stronger and/or larger bags of the taxed material type, in order to carry the same amount of stuff with fewer bags? After all, don’t people often find ways to avoid — in this case literally — “stuffing ten pounds of **** into a five pound bag?” That wouldn’t necessarily reduce (or reduce as much as implied) the amount of bad material used.

All that said, as a general concept I like Pigouvian taxes insofar as they truly and appropriately adjust for externalities.

Good thoughts. I believe that the primary environmental concern about the bags is their tendency to be discarded and then travel (mostly by wind, sewer, and run-off rather than Metro :)) to be harmful litter. For example, in the Anacostia River. I perceive this as a problem here, but it’s even worse in some places I’ve traveled overseas, where you encounter tree and tree festooned with plastic bags.

In a perfect world, the best policy might be a bag deposit plus refund for returning a bag for recycling (which worked well for aluminum cans). But the bags as so cheap that any meaningful refund would induce people to just buy myriad bags wholesale in Virginia and Maryland and turn them in. So the tax seems like a reasonable second-best option.

But as Phil notes, one wonders what all the behavioral responses will be. The goal is that people bring bags with them. But perhaps vendors will go in other, unintended directions.

Excellent article – I linked to it and plugged your website on my own blog post on the subject at http://newsericks.com/the-nickel-bag/ for links to other articles, video, music, and a protest poem. Please check it out and leave a comment to let me know what you think. And no Mr. McGuire, plastics are NOT the future.